What’s Wrong With Nintendo’s Stock?

Posted by: Matt Vella on February 06

Call it the hard bigotry of high expectations. Nintendo (NTDOY) may be coming off a blockbuster 2007 when Wii units and DS portables blew off store shelves, but that hasn’t stopped the Japanese game-maker’s stock from hitting a seven month low. The company’s stock fell 5.9% today, as Japanese exporters brace themselves for a possible recession States-side. Akio Yoshino, chief economist at Societe Generale (SOGN), told Bloomberg today, “There’s an increasing chance that the US will post negative growth in the first quarter, and that’s tough news for cyclical markets like Japan.”

Setting those very real concerns of global economic slowdown aside for a moment, it may be the time to ask if the extent of today’s slide has any implications for the high-high expectations that the company’s 07 performance may be creating and if the stock is in for even tougher times ahead as the U.S. market for console hardware cools in 2008. (Yes, it’ll grow but at a slower rate.)

So, could NTDOY be the next AAPL? The normally tony Apple stock has been hammered recently, despite the steroidal growth in just about everything the Cupertino, California electronics manufacturer has its hands in. (More on that here.) For its part, Nintendo last month revealed that the company’s profits for the previous nine months were double the same period a year earlier. Full year results, which aren’t’ likely to disappoint, are due shortly. After all, year-end NPD figures showed that, in 2007, Nintendo sold 6.29 million Wii units to Microsoft’s (MSFT) 4.62 million Xbox 360s and Sony’s (SNE) 2.56 million PlayStation 3s. And, in an interview with Gamespot.com, Satoru Iwata, the company’s president and CEO since 2002, revealed for the first time that it had sold some 10 million virtual console games to boot.

In other words: record profits, record volume, and – yes – even higher expectations. We’ll have to watch the stock ticker to find out what happens next.

Reader Comments

Cristian Monterroza

February 7, 2008 01:58 AM

It's no surprise to me. Right now financial firms are being hit hard so they need to cash in on their best bets, the most overvalued in PE terms. Nintendo has long been the "new" Apple. Why? They are the next likely company to release a 100 million selling device like the iPod, as recent success has shown. However, for a minute, let's come down to reality. The stock market does not in the short term reflect the stock price. If anything: Expect the stock price to decline further after earnings are released, even if they surpass their own expectations. I'm bullish on the stock long term, however. Don't jump in right now because the uncertainty in the stock market is not going to take it anywhere. When things clear up, this is a hell of a buying opportunity.

Doug

February 7, 2008 04:15 AM

WHERE IS THE EXPLANATION ??? THIS ARTICLE ONLY POSED THE QUESTION AND TOLD ALL OF US FACTS THAT WE KNOW. NOW, CAN ANYBODY TELL ME WHAT HAPPENED IN DETAIL ???

Matt Vella

February 7, 2008 09:17 AM

Cristian -- This is Matt, the reporter/blogger. Very interesting take. Do you buy the NTDOY-AAPL comparison? Obviously both companies are cutting-edge consumer electronics maker with a knack for simplifying products down to the essentials and a spare design aesthetic and so on. But, don't you think Apple and Nintendo are contending with radically different hardware product lifecycles? For example, whereas Apple can refresh or entirely refresh it's iPod line-up, Nintendo has essentially rolled out its major hardware elements and is now banking on a healthy but less lucrative software market. Your thoughts?

Cristian Monterroza

February 10, 2008 11:58 AM

I don't buy the NTDOY - AAPL comparison. AAPL buys the NTDOY comparison. In pointing out the similarities between products, people are missing the forest for the trees. Did you know Steve Jobs first job was at Atari? I'm willing to bet that it was the videogame industry that inspired Steve Jobs to use the "closed system" business model (designing everything from the software to the hardware). Although in times of stress such systems are laggards, AAPL is the perfect example of what happens when the system is done right. As for the lifecycles, it’s becoming more evident that this industry cycle is going to be much longer, probably 10 years. The last cycle's winner, the PS 2, sold more than 100 million in less time. If demand keeps up and Nintendo holds the top position, that should be enough time to push 100 million Wiis. As for a less lucrative software market, I would disagree. Nintendo's strength lies in its low development costs and its products uncanny ability to sell for months, and inversion of the norm and unlike other publishers. After related software development costs have been expensed, that shows up as "free" profit in the future. Add in that Nintendo customers tend to buy mostly Nintendo software and the small but growing royalties from third party developers and I think you have a recipe for long term growth. In this coming recession, Nintendo will be the best positioned since it offers the cheapest products. Among other things, I expect profits to hold up more like those of beer and tobacco companies than those of consumer discretionary companies. Crazy, I know, but ponder about that for a second. This is another one of those “forest for the trees” things that analysts miss.

Cristian

March 7, 2008 11:38 AM

The March 6th Apple event is proof that AAPL bought the NTDOY strategy. Like I said in my opening sentences, Steve Jobs got his business plan from Atari. People have been getting the comparisons all wrong. It is Apple who is like Nintendo, not Nintendo who is like Apple. I knew it was only a matter of time before Apple jumped into the arena. Why? Apple hate's the "first mover disadvantage." Really, Apple has just been waiting until gaming could be deemed "cool." It's a beautiful strategy. Like I said in my closing sentences: videogame's are recession proof. Apple has been holding it's Ace up it's sleeve the whole time. This is bad news for Nintendo who basically wanted to compete in their own market. Now it has Apple to compete against. Remember, the original Mac was built to make videogames. This is yet another one of those “forest for the trees” things that analysts miss. I know know exactly what Apple'S next move is going to be... This is crazy stuff.

Charlie Chung

May 21, 2008 09:44 PM

Doug, relax and read the article.

Japanese investors fear that the US recession may have a heavy negative impact on NTDOY, which is seen to be strongly tied to the buying power of the US market.

Thank you for your interest. This blog is no longer active.

About

No longer child's play, the booming global games market is worth billions of dollars. In Games, Inc., BusinessWeek Innovation writer
Matt Vella and Tokyo correspondent Kenji Hall analyze emerging business trends in video games and interactive entertainment. They’ll examine everything from button-mashing, chart-topping, console games to serious games commissioned by big corporations to train staff. They’ll also map the evolution of expansive virtual worlds and go behind the strategies at companies that are turning play into big business.